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Compensation as a remedy in the unfair dismissal jurisdiction

Feature Articles

Cite as: (2003) 77(9) LIJ, p.52

When determining payment in lieu of reinstatement in unfair dismissal proceedings, the Australian Industrial Relations Commission takes many matters into consideration.

By Tim Donaghey

In unfair dismissal proceedings in the Australian Industrial Relations Commission (AIRC), an applicant may seek reinstatement, an amount in lieu of reinstatement, or both. In Van Leeuwen and Optus[1] the applicant’s “wilful acts” of property damage, were the basis of the AIRC’s decision to decline to order payment in lieu of reinstatement.[2]

The Workplace Relations Act 1996 (Cth) (WR Act) provides for a discretion in the AIRC to make an order that a respondent pay money to an applicant in lieu of reinstatement.

This discretion is limited by both s170CH of the WR Act and factors emerging from case law, which have been further examined and developed since the former Industrial Relations Act 1988 (Cth) (IR Act).

The factors affecting payment in lieu apply where an applicant seeks payment, instead of reinstatement to employment, or where the AIRC determines that reinstatement is not an appropriate remedy.

Remedies in the AIRC

The primary remedy under the WR Act for unfair dismissal is reinstatement. Payment in lieu of reinstatement may be ordered by the AIRC when reinstatement is found as a matter of fact to be an “inappropriate” remedy.[3]

In many cases, the AIRC is prepared to find that reinstatement is inappropriate.

In these cases, the AIRC will consider the factors affecting the discretion to order payment in lieu of reinstatement, as set out in Sprigg and Paul’s Licensed Festival Supermarket[4] (Sprigg).

Sprigg Test

The Sprigg test modifies the criteria applied in earlier cases to determine the amount of compensation to be paid to an applicant where reinstatement is inappropriate. The earlier cases include Shorten v Australian Meat Holdings Pty Ltd.[5] The tests used and the evidence required to determine compensation are examined below.

First step
The AIRC must estimate the remuneration lost by the applicant by reason of the termination of the employment. This loss of remuneration is a calculation of loss over the duration of an applicant’s anticipated employment.

This step necessarily requires speculation. The AIRC must consider how long an applicant would have been employed, and in doing so consider all of the circumstances of the applicant’s former employment. Particular attention will be given to any circumstances which indicate the likely duration of that employment.

In some instances, where warnings as to performance have been given, the AIRC has been willing to consider that an applicant had only a limited future with the employer. On the other hand, if an applicant had a good record, the AIRC has concluded that the applicant may have continued working “for some time”.[6]

The scope for the exercise of discretion in this step is wide. The AIRC may find as little as a few weeks or months; alternatively, it is open to the AIRC to find that an applicant would have worked for the previous employer for many years.

The age of an applicant is also relevant. If close to retirement age, it may be that an applicant would have continued working until retirement.

A respondent will require evidence of any facts relevant to the likely duration of the applicant’s employment. For example, factors such as:

  • any proposed business restructure, or
  • the competitive environment of the business, may tend to show that the applicant’s future work with that employer would have been of short duration.

Determining just what the applicant received, under a wider concept of “remuneration”, is also significant. Some cases have cast the net widely, to include all aspects of remuneration, including apportioned long service leave, superannuation and non-pecuniary benefits, such as a car.[7]

Second step
The AIRC must deduct money earned by an applicant between the date of termination and the date of the hearing in the AIRC. Any mitigation of loss, or any failure to mitigate by the applicant, is relevant for the respondent.[8]

It is established that WorkCover payments made in the relevant period may be deducted,[9] however, social security payments may not.[10]

In Beardmore and Tyco Australia Pty Ltd,[11] the AIRC deducted redundancy payments paid by the respondent and redundancy, long service and other entitlements paid under an industry contribution scheme, a total of $33,120.

In conducting a proceeding, a respondent ought to:

  1. examine carefully whether an applicant has mitigated the loss, and if so how the applicant has mitigated. This could include such matters as jobs applied for, applications made, or approaches to recruitment agencies. If no steps have been taken, various cases have reduced the payment ordered to applicants to account for this inactivity;[12] and
  2. endeavour to find out the amount payable to the applicant, if the employee was entitled to benefits from an industry contribution scheme (such as income protection insurance, or a redundancy fund). Award provisions may also incorporate an amount which must be payable upon redundancy.

A more difficult situation emerges where a respondent alleges that the acceptance of lower-paid employment is not sufficient mitigation. In that case, the onus is on the respondent to show that better-paid work was available.[13]

It is significant to note that a genuine attempt to find work will be sufficient mitigation for the AIRC’s purposes. While there is Full Bench authority regarding the requirement of an applicant to act reasonably in mitigation,[14] it appears that more than a merely token effort by the applicant must be made. See for example, Cox and Enhance Systems,[15] where the applicant merely “looked through a few newspapers” and contacted an employment agency.[16] Bearing this in mind, a respondent should require actual evidence of job applications made by an applicant to be provided.

Third step
The amount of payment in lieu of reinstatement is often discounted for contingencies for the period after the hearing.[17] This “discount” applies only to that portion of remuneration which an applicant would have earned in the period following the AIRC hearing.

This step requires an examination of factors (such as illness, accident or redundancy) which might affect the amounts paid to the applicant. Also, in some decisions, where the payment of remuneration would have been received over time, payment of an amount as a “lump sum” is seen as a reason to apply the discount.

There is no automatic percentage discount to be applied in this step. Rather, submissions as to the general circumstances of the applicant are appropriate. In many cases, the contingencies discount has been applied in the order of 25 per cent. In other cases, a discount of between 10 and 15 per cent has been applied.[18]

This step may not merely reduce the amount payable to the applicant, as positive contingencies are also a factor here. For example, any potential increase in remuneration or classification must be taken into account.[19]

Thus the “discount” percentage in the third step of Sprigg is a dilemma for a respondent. There is a wide scope for variation in the application of the discount. In preparation for a hearing, a respondent may wish to consider matters such as:

  • whether there is a maintainable argument for any degree of uncertainty, in the period after the hearing; or
  • where any aspect of the applicant’s employment circumstances, such as pre-existing injury or capacity, would warrant a discount.

Fourth step
This step requires the deduction of taxation. In most cases, the amount ordered by the AIRC is an amount inclusive of taxation, with the appropriate taxation to be deducted by the respondent, before payment is made to an applicant.

Considerations in s170CH(7) of the WR Act
The discretion is further limited by the mandatory s170CH(7) considerations. Two of the factors to be considered from pre-Sprigg cases have been given statutory force in the WR Act. Accordingly, only three considerations in s170CH(7) of the WR Act need be examined independently of Sprigg.

The result of the first four steps in Sprigg is to produce a provisional figure for payment based on the facts of the matter. This provisional amount must then be examined by reason of the s170CH(7) factors.

Cases differ as to the time at which the s170CH(7) factors will be considered. It is not necessary for any particular timing, so long as the mandatory considerations decision are properly applied and reasons given.[20]

The s170CH(7) considerations are:

Viability
Sub-section 170CH(7)(a) of the WR Act requires the AIRC to have regard to the effect of the order on the viability of the respondent’s undertaking.

The AIRC is reluctant to infer or draw any conclusion as to effect on a respondent, unless detailed evidence as to the financial situation is adduced. See, by way of example, Watts and Cheltenham Manor & Mews Pty Ltd.

A respondent may only wish to lead evidence in respect to this consideration, if the effect of an order of compensation may be the complete failure of a respondent’s business.

Length of the employee’s service
Most often, this consideration is treated without detailed examination by the AIRC.[22]

It is difficult to extract any cogent rationale from the AIRC’s examination of this part of the sub-section, save to say that where evidence demonstrates a long period of service, this may lead to a conclusion that reinstatement as a remedy may be more appropriate.

Any other matter
This consideration in sub-s170CH(7)(e) of the WR Act demonstrates the broad scope of the discretion regarding payment in lieu of reinstatement.

Many factors, including any antagonism, history of work practices and any disputes may play a role here.

It is important to avoid re-litigating the merits of the claim and focus on issues relevant to an order for payment in lieu of reinstatement.

Although the AIRC did not refer to this source of the discretion in the published decision, it is likely that Cargill C in Van Leeuwen v Optus was relying on sub-s170CH(7)(e) in deciding not to order payment in lieu of reinstatement: see para 71. Cargill C took this unusual but instructive step, after:

  • finding that the dismissal was harsh: at para 66; and
  • considering the compulsory factors in s170CH(7) and elements of Sprigg.

Thus, this consideration is particularly significant when it comes to matters involving any conduct which might disentitle an applicant to a remedy, such as fraud, theft or property damage. In such circumstances, a respondent may well seek to lead evidence on these matters not only in relation to the merits of the matter, but also as regards remedy.

Fifth step
The legislative cap in ss170CH(8)-(9) of the WR Act are applied to the provisional amount arrived at by reason of the first four steps in Sprigg. This cap limits the payment in lieu to the amount of remuneration payable during the six months before the applicant’s employment was terminated.

Conclusion

The elements of Sprigg are not well understood by many practitioners in the AIRC, and yet they are fundamental in determining the outcome of an application for payment in lieu of reinstatement.

The discretion given by the WR Act to the AIRC is broad. Once the AIRC has:

  • determined that a termination is harsh, unjust or unreasonable;
  • found that reinstatement of the applicant is not appropriate; and
  • decided that an amount should be paid in lieu of reinstatement, then the discretion is subject only to the those considerations set out in Sprigg and in s170CH of the WR Act.

Consideration of the possible remedy requires a respondent to prepare specific facts, which otherwise may not be obtained. In preparing the case, the question of penalty should be considered separately. The evidence necessary to determine penalty is distinct from that required to determine whether the termination is harsh, unjust or unreasonable. It is only by considering the remedy separately, that a respondent may ensure that all relevant evidence is adduced.

It is not always easy when looking at AIRC decisions to determine what evidence has been taken into account when determining the amount of payment in lieu of reinstatement, nor how the evidence is used. This makes it all the more important when preparing a matter for a respondent to identify issues going to questions of payment in lieu, and to make use of any evidence which assists the respondent in those issues.


TIM DONAGHEY is a member of the Victorian Bar. He practises in all aspects of industrial and employment law, and is a member of the Industrial Relations Society of Victoria.


[1] Print PR925130, 28 November 2002, per Cargill C.

[2] See, in particular, Cargill C’s conclusions, note 1 above, at para 71.

[3] See s170CH(6) of the WR Act; see also Ellawalla and the Australian Postal Corporation, Print S5109, 17 April 2000, per Ross VP, Williams SDP and Gay C, at paras 24-26.

[4] Print R0235; (1998) 88 IR 21.

[5] (1996) 70 IR 360.

[6] See Vincent and Network Sets and Scenery, Print R5380, 1 June 1999, per Watson SDP.

[7] Note 5 above, at page 376.

[8] See also sub-s170CH(7)(d) of the WR Act.

[9] See Webster and Bilston’s Food Store, Print T1942, 12 October 1999, per Foggo C.

[10] See note 6 above. It is instructive to compare Kennedy and Cumnock No 1 Colliery Pty Ltd, PR908987, 19 September 2001, per Giudice J, Harrison SDP and Jones C. Note that Kennedy’s case was a reinstatement case, and dealt with s170CH(4) of the WR Act.

[11] Print R3581, 27 April 1999, per Hodder C.

[12] See Chen and Berry Springs Water (Australia) Pty Ltd, Print PR905182, 13 June 2001, per Duncan SDP.

[13] Southcorp and MacDonald and Seymour, Print PR917245, 2 May 2002, per McIntyre VP, Lacy SDP and Holmes C.

[14] See Biviano and Suji Kim, Print PR915963, 28 March 2002, per Ross VP, O’Callaghan SDP and Foggo C.

[15] Print PR908082, 4 September 2001, per Cribb C.

[16] This aspect of the first instance decision was adopted on appeal: see Print PR910779, 31 October 2001, per Williams SDP, Acton SDP and Gay C, at para 42.

[17] See Slifka v JW Saunders Pty Ltd (1995) 67 IR 316.

[18] A discount of 10 per cent was applied in Chrion and Quasars, Print S3617, 28 February 2000, per Merriman C, at para 14. In decisions such as Falconer and NUS Consulting, Print PR916546, 15 April 2002, per Ives DP, no discount was applied.

[19] See also Ellawalla Full Bench, note 3 above, at para 44. Though note that the Full Bench was reviewing the authorities and did not rule on this point as the principles were not argued before the Bench.

[20] Edwards v Giudice (1999) 94 FCR 561; [1999] FCA 1836.

[21] Print PR920672, 31 July 2002, per Ives DP.

[22] See, for example, note 12 above, at para 55.

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